AA products are also relatively safe and give good yields: Sam Ghosh

At a time when the life insurance industry is looking for a catalyst to boost growth, the finance ministry has come forward with a set of reforms. Sam Ghosh, CEO, Reliance Capital, talks about the implications of the finance ministry’s revival package for the sector to M Saraswathy. Edited excerpts:

How would you gain from the recently announced package for insurance?
Reliance Life will gain the most in bancassurance, where the finance ministry has allowed banks to work like brokers. Since we do not have any bancassurance tie-up with a bank, this would give us disproportionate benefits compared to companies that already have such tie-ups. It will push our volumes up, too. The top three players in private insurance are owned by banks. Among these, about 60 per cent of the business comes from the banks.

Are the new bancassurance reforms simpler?
The bancassurance model proposed now is simpler, and is a better alternative than what was presented in the earlier draft guidelines by the regulator. I think there might be some issues with banks acting as brokers, as they would have to get approval from the Reserve Bank of India for doing so. So, having a system similar to a broker (not exactly as a broker) wherein a bank can work with multiple players is a good proposal. We are waiting for the final guidelines from the Insurance Regulatory and Development Authority (Irda) on the same.

Will the use-and-file reforms result in faster product approvals?
There were some delays in product approvals by Irda, as they had to consider several regulatory issues. Going forward, we believe companies can immediately launch products and improve them subsequently. Earlier, the compliance on the product guidelines side was dealt with by Irda. Now, they will be in the hands of the insurance player.

Pension is an area where product approvals have been taking a long time. Are you disappointed that no pension product measures were announced?
We felt pension is an area where they needed to focus on. This is primarily because 40 per cent of the business for companies used to come from pension products. It has been put on to Irda, because it is they who would be bringing in the measures for revival of this segment.

According to the new proposal, insurance companies should be allowed to invest in bonds with ratings below AAA. Do you see any risk?
It is purely for the company to decide whether they want to invest in an AA rated instrument, because the returns will be good from the company’s perspective. Companies need to assess these products carefully. However, AA products are also relatively safe and give good yields.

This will give a good push to the infrastructure sector. Also, the bonds of AA category give slightly higher returns. Overall, the ministry is trying to address the growth concerns of the sector.

Will premiums come down due to the reforms?
Due to the service tax provisions, premiums may be reduced marginally. But largely, premiums will remain constant. If the budget proposal of giving tax rebate to policies with sum assured of 10 times the annual premium is reduced to a lower number, it will boost sales. It has been indicated by the ministry that the taxation issue should be tackled. In other countries, for example, long term savings are exempted so as to increase penetration of insurance products.

Is there an area which has not been addressed by the finance ministry?
There are minor areas which need to be addressed. The licensing of agents is one of them. Looking at the size of the nation, we need to have online and offline processes for licensing. Irda will have to look at it.

On the micro-insurance front, will banking correspondents acting as agents boost sales?
This will add to the channels which reach the rural customers. A number of micro-insurance products are profitable as the payouts are very low. I believe additional channels will increase penetration and boost growth.

Are you satisfied with the ministry’s initiatives to boost the sector?
Customer growth and industry growth have been the focus of the finance ministry. Bancassurance will be a big driver for this growth. By helping banks showcase products from several insurance firms, customers will have several choices.

Once the bancassurance system opens up, banks will have to train their own people to sell the products. The benefit is that customers get a large variety to choose from.

In the last two years, the insurance industry has overall seen a negative growth rate, except some companies. The ministry is trying to give a fillip to the sector by boosting growth not only for the sector, but also for the stock market and infrastructure projects.